Alberta Synfuels carbon capture project funding cancelled

CALGARY • One of the central planks of Alberta’s climate change strategy was cut in half Monday, as the province abandoned plans to give Swan Hills Synfuels LP $285-million to build a synthetic gas plant in the oil hub northwest of Edmonton.

Calgary-based Swan Hills was one of four companies earmarked for funding when Alberta announced a $2-billion commitment to accelerate carbon capture and storage, or CCS, projects in 2008.

Only two proposals are left standing following Monday’s decision, after power generator TransAlta Corp. scrapped plans for a CCS unit at its Keephills 3 coal-fired power plant west of Edmonton last year.

Swan Hills president Doug Shaigec said the $1.5-billion venture, which included a CCS component, was shelved because it’s cheaper to buy natural gas in today’s market than manufacture a synthetic product from underground coal seams. No money on the project has so far been spent, Mr. Shaigec said.

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“It’s a deferral of our project. It’s certainly not a cancellation in any respect,” he said in an interview.

For Alberta, the decision to walk away from another CCS project comes amid heightened scrutiny over the environmental toll of extracting sticky, tar-like bitumen from underneath the province’s boreal forests. The technology was touted in a 2008 Climate Change Strategy as a means to “substantially” cut greenhouse gas emissions without impinging on the province’s energy production.

U.S. lawmakers have yet to decide the fate of TransCanada Corp.’s Keystone XL pipeline, which would funnel Alberta production for refining on the Gulf Coast, and temporarily clear a backlog that has cost producers — and their investors — dearly.

Fundamentally this was a high gas-price play and it’s not surprising to see them drop off the table in a low gas-price environment

Oil sands equities fell 2.6% in the month of February compared to a 0.1% loss for the S&P/TSX Energy Index, due largely to “the ongoing Keystone debate and investor concern regarding the outlook for heavy oil,” BMO Nesbitt Burns analyst Randy Ollenberger said in a note on Monday.

Energy Minister Ken Hughes defended Alberta’s record Monday. The energy-rich province faces a potential $4-billion deficit this year on lower resource royalties and could see projected revenues cut $6-billion in 2013-14. Every $1 decline in the price of West Texas intermediate benchmark crude costs the provincial treasury $223 million in forgone revenue, according to provincial estimates.

In an interview, Mr. Hughes said the remaining two CCS projects — including one backed by Shell Canada Ltd. — are “fully” funded.

He dismissed the suggestion the remaining $1.3-billion flagged for CCS, doled out over 15 years, would be subject to budgetary constraints. “I’m confident that funding is in place,” he said.

Surprise was not a word used by observers to describe the aborted Swan Hills project.

“Fundamentally this was a high gas-price play and it’s not surprising to see them drop off the table in a low gas-price environment,” said David Keith, a professor of public policy at the Harvard Kennedy School of Government and Canada Research Chair in Energy and the Environment at the University of Calgary.

He said he doubted whether the decision to cancel the project would have an impact on U.S. lawmakers deciding whether to approve Keystone, which has been bogged down by controversy and politics since it was first proposed by TransCanada in 2008.

“The central issue here is about trying to block access to a big carbon pool,” Mr. Keith said, referring to the perception of the oil sands among U.S. environmental groups and non-profits fighting the pipeline’s $5.3-billion cross-border segment. “Alberta spending a little bit of money around the edges to reduce emissions with some related technologies in the province doesn’t alter that in any way.”

Alberta Premier Alison Redford said the province’s carbon capture and storage plans came up over the weekend as she met with 22 Democrat and Republican state governors in Washington to lobby for the Keystone XL pipeline. Redford said she emphasized Alberta still has $1.3 billion invested in its two surviving projects.

“I think people are impressed that we’ve put that much money in,” she said.

The two remaining CCS projects in Alberta — both heavily funded by the provincial and federal governments — include Shell’s $1.35-billion Quest project north of Edmonton and the Alberta Carbon Trunk Line, a joint venture between Calgary-based Enhance Energy Inc., Agrium Inc. and Northwest Upgrading Inc.

Carbon capture is “still a solution to our growing CO2 emissions,” Susan Cole, president of Enhance Energy, said in a telephone interview. “And as our oil sands continue to grow we’re still going to have that problem.”

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